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Increased IRS Budget Would Cut US Tax Gap: CBO

by Mike Godfrey, Tax-News.com, Washington

29 June 2016


The Congressional Budget Office (CBO) has estimated that increasing the enforcement budget of the Internal Revenue Service (IRS), as proposed by President Barack Obama and argued for by the agency's Commissioner, John Koskinen, would reduce the US tax gap.

The CBO noted that IRS funding fell by 15 percent from 2010 to 2016 (in real dollars). The biggest cuts were in enforcement, although that activity still receives the largest share of the IRS budget, at 43 percent, compared to, for example, 21 percent for taxpayer services.

It found that raising the IRS's enforcement budget by USD421m in 2016, rising to USD435m in 2018, and then staying at that level – a total additional spending cost of USD18.7bn over 10 years – would find an extra USD55.3bn in tax collections. The net revenue gain would therefore be some USD36.6bn (or around twice the total cost) over the decade.

Earlier this year, the IRS had estimated that the average annual gross tax gap in the United States in 2008-10 was USD458bn. This would be relatively unchanged from the USD450bn calculated in 2006.

However, the National Association of Enrolled Agents (NAEA) had then struck a note of caution over the apparent small change to the tax gap. "The newest data... is before IRS's budget took an approximately USD1bn hit (annually) and before staffing dropped by some 16,000 or so," it said. "Let's not conclude that a flat tax gap indicates tax compliance hasn't taken a hit because of reduced IRS resources. We won't know that for years."

TAGS: compliance | tax | tax compliance | law | budget | Internal Revenue Service (IRS) | enforcement | tax authority | United States

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